Securitization of debt

SECURITIZATION OF DEBT
 Presented by
 NISHANTH H
 MBA, RYMEC
 BALLARI.

Contents
 Meaning and Definition
 Features
 Special PurposeVehicle(SPV)
 Types

Meaning of Securitization of
Debt
Securitization means the conversion
or future cash in-flows of any person into
tradable security which then may be sold in the
market.The cash inflow from financial assets
such as mortgage loans, automobile loans, trade
receivables , credit card receivables, fare
collection become the security against which
borrowing are raised. In fact even individuals can
take the help of securitization instrument for
better economic efficiency.

Definition of securitization of
Debt
According to Oxford Dictionary,
“Securitization means to convert an
asset(specially a loan) into marketable
securities for the purpose of raising cash or
funds”.

Features of Securitization of
Debt
 Marketability
 Merchantable Quality
 Wide Distribution
 Homogeneity
 Commoditization
 Integration and Differentiation

Special Purpose Vehicle
(SPV)
 The entity that intermediates between the
originator of the receivables and the end investors is
known as ‘Special PurposeVehicle’.

 The function of the SPV in a securitization
transaction could stretch from being a pure conduit
or intermediary vehicle, to a more active role in re-
shaping the cash flows arising from the assets
transferred to it, which in turn would depend on the
end objectives of the securitization exercise

Now a days it can be used interchangeably
with the following names
1. Special PurposeVehicle (SPV)
2. Special Purpose Entity (SPE)
3. Special purpose trust(SPT)
4. Special Purpose Company (SPC)

Securities Issued by Special
Purpose Vehicle/Entity
 Mortgage-Backed securities (MBS), which are
backed by mortgage.
 Asset-Backed Securities(ABS) which are
backed by consumer debt;
 Collateralized Debt Obligation (CDO), which
are the mostly backed by corporate bonds or
other corporate debt.

Types Of Securitisable
Assets
 Mortgage-Backed securities (MBS)
 Assets-Backed securities (ABS)
 Collateralized Debt Obligations (CDO)

Mortgage-Backed Securities
(MBS)

Assets-Backed Securities
(ABS)
 Asset-Backed Securities or ABS, are bonds
created from various types of consumer debt.
When consumer borrow money –whether by
taking out a home –equity or auto loan, or by
running a balance on a credit card – their
loans become assets on the books of the
entity extended the credit- a bank, an auto
finance company or a consumer finance
company....

Collateralized Debt Obligation(CDO)
 Collateralized debt obligation is securitized
interest in pools of –generally non-mortgage
–assets. Assets – called collateral-usually
comprise loans or debt instrument. A CDO
may be called a collateralized loan obligation
or collateralized bond obligation.......

Securitization of debt

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